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Growth Stock Debate Boils as Goldman Argues With Morgan Stanley

(Bloomberg) -- The economy is showing signs of stress. Do you buy or sell U.S. growth stocks? That depends on which gigantic investment bank you ask.

Both citing an anemic economy, Goldman Sachs and Morgan Stanley are building opposite cases for companies that have shown the ability to deliver faster growth in either revenue or profits. At stake is a decade-long winning trade that has consistently beat a competing strategy known as value that touts stocks with cheapest valuations.

On the bullish side of the argument are Goldman strategists led by David Kostin, who recommend investors buy the 50 companies with the best growth potential, such as Amazon.com, SVB Financial Group and Adobe. Growth is so scarce now that these rare finds will pay off, they say.

“With economic growth slowing and firms struggling to maintain margins, investors should focus on 50 firms that are expected to deliver the fastest 2019 sales growth,” the strategists wrote in a note Friday.

To Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, slowing global growth and declining earnings estimates are precisely the reason to steer clear of growth stocks. No one would be spared during this slowdown, making these darlings particularly vulnerable, she says.

“Growth style’s dominance may be peaking.” she wrote in a Monday note. “Consider replacing U.S, passive index exposure with active stock-pickers and with a bias toward value and quality factors.”

After beating growth for the first time in two years in the fourth quarter, value stocks have dropped back again in 2019, rising about 10 percent versus their counterparts’ almost 13 percent rally, indexes compiled by Russell show.